Wednesday, April 14, 2010

The Tortured Soul Of St Vince

8th circle... going down

The thing about St Vince is that he's not only a trained economist, but he's also above reproach. When St Vince speaks on matters spiritual or temporal you may be assured it is the gospel truth. For St Vince is an honourable man.

Which is why when he tells us the LibDem plan to raise the personal tax allowance to £10 grand is fully funded by tax increases elsewhere, we know it must be true.

Yes, indeed. It must be true.

But just in case, just in case there are any doubting Thomases out there - unbelievers whose souls stand in mortal peril - let's just see how St Vince's numbers add up.

The LD plan is to increase the personal tax allowance from £6475 to £10000. They say it will cost £17bn pa. We don't know how they got to that figure, because it isn't explained on their website. Luckily, we have HM Treasury's tax ready reckoner, which allows us to calculate precisely what an allowance increase of £3525 would cost (or at least what the official Treasury calculation says*).

HMT says that an increase of £100 would cost £650m pa (full year effect). So St Vince's increase would cost £22.9bn.

Hmmm. That would appear to be £6bn pa higher than what St Vince says. And St Vince is an honourable man. It can't be right.

Well, maybe £17bn is just the first year cost. The Treasury says that only amounts to £17.9bn, so maybe St Vince has taken £17.9bn and simply rounded it down. A bit.

Yes, that must be it.

Althooooough... if it's just the first year effect, you'd kinda think St Vince might have wanted to mention that key fact.

And he might also have wanted to mention that the tax increases to pay for this higher allowance are longer term revenues, depending in large part on closing supposed loopholes and cracking down on avoidance. And come to think of it, he might also have pointed out that HMRC has been unsucessfully attempting to crack down on avoidance since the time of Caesar Augustus.

Then there are those spending cuts he claims to be so much more honest about. In reality, as we blogged here, he's only actually come up with one-fifth of the cuts he says we need - which ain't a whole lot better than anyone else.

Poor St Vince. Back in the day when he could just criticise from the sidelines, his soul could remain reasonably intact. But now he's pitching for hung parliament power, he's been sucked down into the same dark pit of spin and half-truths that ensnare and condemn every other mortal sinner.

May the Lord have mercy.

*Footnote A BOM correspondent has suggested we add some clarification. As you may know, HMT's tax ready reckoner is based on what's known in the trade as a "static" economic model. What that means is that it takes no account of the dynamic effects of cutting taxes - ie the stimulative effect on GDP growth and hence tax revenues. In reality, those dynamic effects will reduce the long-term fiscal cost of cutting taxes. How much is still a matter for debate, but Tyler believes the effect is significant. For example, recent work by Policy Exchange suggests that over the long-term, HMT's static cost of an increase in personal allowances could be more than halved. So shouldn't we give Vince credit for those dynamic effects? Well, yes we should - except for the fact that his associated tax increases would also have dynamic effects and they would go in the opposite direction. And as we say in the main post, we have no idea how he's reached his numbers because he hasn't levelled with us on the details.

PS Those polls, eh? We've started to keep a record of which poll is saying what, so we can have a good laugh at them after the Tories win a working majority. The latest is today's Populus poll in the Times which has the Tory lead imploding to just 3%. Of course, if they turn out to be right, and if the electorate gets the hung parliament it supposedly now wants, and if St Vince becomes Chancellor, and if we get the huge financial crisis that will inevitably follow, then we won't be laughing. But then again, we won't be living here either.

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